OIL: The Great Hunter

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In the great gamble of oil, one of the world’s biggest winners is a chance-taker named Alfred Jacobsen. His rule for success is simple: “If you don’t want to take risks, you can’t make money. If you haven’t the courage to lose, stay out of oil.”

Jacobsen, a tall (6 ft. 1 in.), spare man with a lined, ascetic face, bright brown eyes and explosive energy, has the courage to take big risks, and when necessary, the courage to lose. But he wins far oftener than he loses. He wins because he hunts oil in the ground with the same passion and dedication that inspired Captain Ahab, an oil hunter of another day, in his pursuit of Moby Dick. By so dedicating himself, Alfred Jacobsen has made his Amerada Petroleum Corp. the most famed independent oil hunter in the oil industry. Amerada, at 185, is the seventh highest priced common stock on the New York Stock Exchange. Of all the 1,526 listed stocks, Amerada is the No. 1 favorite of the investment trusts.

Last week Hunter Jacobsen was busy, as usual, indulging his passion. In Oklahoma, he was drilling four wells; in California, three; in Louisiana, one; in New Mexico, nine; and in Canada, four. He was busiest of all in North Dakota. There, he was drilling 20 wells. For in North Dakota’s Williston Basin, Jacobsen has made his biggest strike. He has found many a new oilfield in the past. But in North Dakota he found something far bigger. Says he: “The Williston Basin is not just one oilfield. It is an oil province.”

The Gold-Dust Bowl. In that province last week, above the ocean flatness of North Dakota’s wheat and cattle plains, flaming gas flares from 69 Amerada wells stabbed the night sky. The land that had been a dust bowl only 20 years ago was now an El Dorado to many farmers who had been on relief or working for WPA. Overnight, they had become wealthy. Last week the big opportunity had come for Farmer Lewis M. Osborn.

Working day & night, Amerada’s drillers had driven a three-cone rotary rock-bit deeper & deeper into the earth of Osborn’s farm. The rig’s platform throbbed with the clanking rumble of a diesel engine spinning the drill. As the drill bit down into the earth, new lengths of 60-ft. pipe were threaded on to join the mile-and-a-half of pipe already whirling below ground in a single, continuous column. At 8,663 ft. the drilling was stopped, the drill pulled out. Hurriedly the hole was cased with seven-inch pipe and capped. Then, when all was ready, the cap was opened. With a great hiss, jets of water and drilling-mud shot out of the hole. For a few minutes there was just the steady hissing of moist gas, smelling like rotten eggs. Then came the oil—a greenish-yellow stream. Amerada had brought in its 70th Williston producer, and Farmer Osborn was on his way to wealth. By year’s end Amerada will have 75 producers in the basin, in another year more than 150.

Although Amerada still has the biggest block of producing acreage (it has leases on 1,500,000,acres in all) in the basin, it now has plenty of company. Most of the major U.S. oil companies, plus most of the top independent wildcatters, have rigs towering all over the basin, from 100 miles east of Bismarck to eastern Montana, where Shell Oil and Texaco discovered two rich fields near Richey and Glendive. In this big oil play, there are more than 80 drilling rigs and 120 exploration crews probing the Williston Basin for oil.

The boom has none of the bawdy, big-spending glitter of oilfields of a bygone era. The basin’s chief invaders are the drilling crews, who brought their families and live in the trailer cities that dot the crossroads (see NEWS IN PICTURES). Hotel lobbies and restaurants hum with brokers hawking leases and mineral rights, but there is little oldtime roistering.

In the basin, the oil companies are already spending an estimated $100 million a year. A Standard of Indiana subsidiary is planning a pipeline to Mandan, across the Missouri River from Bismarck, and Standard itself will build a 15,000-bbl-a-day refinery. Amerada will have to put up a multimillion-dollar plant to take natural gasoline out of the gas now being “flared” (i.e., burned) at the well. Enthusiastic businessmen predict that a prairie empire of chemicals and synthetics, rivaling the Gulf Coast’s, will rise from these new sources of raw materials. So far, lack of transportation has held the flow of oil to a mere trickle, only 10,000 bbls. a day. But Jacobsen estimates that its productive capacity will reach 100,000 bbls. a day within five years. The full extent of the Williston Basin’s reserves will not be known until thousands of square miles, as yet untouched, are drilled. Estimates of oil in the basin run from 500 million bbls.—and up—compared to reserves of more than 2 billion in the great East Texas field, the richest ever found in the U.S.

Success in the Williston Basin is far from Amerada’s sole claim to fame, though it has proved so exciting to Wall Street that stocks only vaguely associated with Williston have spurted like a new gusher. Three months ago Amerada brought in a new discovery well in Alberta’s Peace River area which Jacobsen says may have great possibilities. Cautiously, he says it is too early to estimate the size of the new find, and adds that the Peace River area “may prove to be a pain in the neck or something really big.” And only two weeks ago, in Texas’ Yoakum County, Amerada’s drillers brought in still another new field. It was not a very big one, but it is the sort of new field that Jacobsen calls Amerada’s “bread & butter.”

Easy Work. Wildcatting for oil, Jacobsen likes to say, is the easiest thing in the world: “You can make millions and millions. All you need is a checkbook—and money in the bank. You can get a competent drilling contractor to do all the work for you and you wouldn’t even have to go near the place you were drilling. All you’d have to do is pick the place to drill.”

Once, picking the spot was fairly easy and cheap. Wildcatters drilled where they could find oil seeping from the ground. Now, drilling for oil is highly complicated and expensive, especially the way Amerada does it. Oilmen have suspected for years that there was oil in the Williston Basin. A saucerlike underground formation, the basin is composed of sedimentary strata which were once the bottom of a prehistoric sea—the type of formation in which oil is found.

But no one could find oil in the Williston. After independent wildcatters had failed. Standard of California tried its luck in 1938. It went down 10,281 ft. before it gave up. Then in 1946 Amerada got interested. In buying a block of leases it got some that Standard had let lapse on the area known as the Nesson Anticline (see chart), a gently sloping dome of rock. (The surface anticline, i.e., an upward fold of porous rock, often indicates a similar undergound dome under which oil frequently is imprisoned.) With the first batch of leases in its pocket, Amerada sent brokers all over the area, leasing more thousands of acres of land. Says Jacobsen: “When you make a big play, you have to be sure you’ll have plenty of land to drill if you find oil. And you have to get your land first, if you want to get it at a reasonable price.”

Shock Troops. Not until he had about 400,000 acres under lease did Jacobsen send in his teams of geologists and geophysicists to map the surface and underground strata. By such tricks as drilling shallow holes and setting off dynamite in them, the geophysicists could time the shock waves through the ground, thus guess at the type of rock, shale or sand strata through which the waves were passing. For four years the teams mapped the area. Then the results were studied for months by Amerada’s Dr. Benjamin B. Weatherby, one of the top geophysicists of the industry.

What Dr. Weatherby and staff were looking for was the peak of the underground dome. When this area was plotted on an ordinary contour map, it was time for Jacobsen & Co. to weigh all the geologic and other factors and make the final decision to drill. The big work was preparing the maps and locating the possible oil-bearing area; picking the spot to drill was easy. Says Jacobsen: “Any office boy at Amerada could have done that because you drill in the peak of the dome. As long as you stay in that area you could pick your spot by the Sam Weaver method.”*

The Squeeze. The spot picked was on the farm of Clarence Iverson, 30 miles northeast of Williston. By the time Amerada had hired the crew of drillers, it had spent more than $500,000 just for geophysical work and leases. By the time the well was down to 11,700 ft., it had spent another $500,000. On April 5, 1951, the Iverson discovery well came in and North Dakota became the 27th U.S. state to yield oil.

Why did Amerada succeed where others failed?

The big reason was that Amerada pioneered and perfected the scientific geophysical methods now in general use for finding oil. It has since kept a bit ahead of most oil companies in their use. Says Jacobsen: “I guess we manage to squeeze a little bit more information out of our maps.” On the other hand, he adds, “we found oil in the Williston Basin with the same men and the same methods with which we missed it in other places that looked just as good. In the end, to find oil, you still have to drill a well.”

If the Iverson well had missed, Jacobsen would have tried two or three more wells in different places and, if these were dry, would have written off the $2,000,000 or so loss without a quiver. The thing to remember, he says, is that “you have to be right more often, dollarwise, than you’re wrong. It’s not just a case of drilling more oil wells than dry holes. You can make a series of mistakes which may cost you a total of $5,000,000, but you can offset them by being right the one time when $9,000,000 is involved.”

The Player. One reason Jacobsen is right more often than wrong is that his work is his consuming interest. He usually spends Saturday and Sunday in his Manhattan office because “I can get more work done when I’m alone.” He has no social life, shuns the theater, movies, TV, but is a wide reader. A wealthy man (his Amerada stock alone is worth $8,000,000), he makes no show of it, wears a somber uniform of dark clothes, has no car, shuttles to his Manhattan office by subway from the staid old Plaza Hotel, where he has lived for 25 years. “I’m not gregarious,” he says. “I don’t have many friends and no particular friends. I have business associates, but no personal friends. I don’t goin for that sort of thing.”

He plays no golf or other sports; in fact, he does not need to. He gets his exercise in his office, where he can’t sit still. “It gives me hydrophobia,” he says. While dictating, talking, or just thinking, Jacobsen paces swiftly back & forth for hours on end, moving so fast that visitors have to swivel their heads to keep him in view —like watching the ball in a tennis match. When Jacobsen gets really interested in conversation, he paces in a big, swooping circle, walking right around visitors. They usually stop trying to swivel around with him, just sit still and catch him each time he passes in front. “I don’t know how many carpets I’ve worn out,” he grins.

He doesn’t waste words, often merely barks out the monosyllables “Right!” “Shoot!” “No!”. But if necessary he can talk for hours—with great clarity. He speaks five languages (Danish, English, Spanish, German, French), but deprecates this facility, saying: “Languages have always come easy for me. It has nothing to do with intelligence. It’s just a gift in that direction.”

The Game. Amerada is his one-man show, tailored to fit his tastes. Unlike the major oil companies, which have pipelines, refineries and service stations, Amerada has never done anything but hunt, find and sell crude oil. Consequently, while the majors can budget only so much each year for drilling, Jacobsen can spend as little or as much as he pleases. Last year he spent $19 million, this year boosted it to $24 million because of the need for fast development in the Williston Basin. In the same way, Jacobsen can virtually control Amerada’s tax bite.*

From its inception, Amerada has plowed every possible penny of income back into the ground in exploration and new drilling. As a result, people are apt to get the wrong idea when looking at Amerada’s annual statements; it stands only 28th among U.S. oil companies in income, but it ranks 19th in production, and is the biggest independent company doing nothing but producing oil. Amerada pours so much of its profit back into drilling that last year it paid no excess-profits tax at all. It allocates only a small amount for regular corporate taxes. But the knowledge of Amerada’s buried wealth makes investors pay prices for its stock far out of proportion to its modest dividends ($3 this year). They know that its growth in the past has always justified the high price of its stock. ($26 invested in the stock in 1926 would have grown to $940, counting stock splits, at 1952’s high.)

The rest of Jacobsen’s management is just as flexible as his drilling program. He has no table of organization, no committees, no departments for employee relations, public relations or advertising. Amerada has only nine rooms and a handful of aides in Manhattan. From the main office in Tulsa, Amerada’s 1,800 employees are bossed by Executive Vice President E. H. McCollough, a trained geologist. Jacobsen is no geologist, engineer or physicist. Says he: “I’m nothing. I hire men who are specialists in those fields, and it is silly to mess with them. I don’t meddle much. I keep in touch.”

On his desk every morning are reports from Tulsa, covering Amerada’s entire operations the previous day. Jacobsen is on the phone with McCollough at least once a day, spends $750 a month on his own calls alone. He regards the chief role of an executive as the exercise of judgment, “the one thing you can’t learn at college. You either have it or you don’t have it.” In his own case, he applies it chiefly to “the knowledge of when to take your chances, avoiding getting tied up in a series of large gambling ventures so big that you couldn’t take it in your stride if you lost.”

Amerada has few fixed policies. “Policies,” says Jacobsen, “are merely a damn convenient excuse for avoiding a difficult decision. Take a company that has all kinds of policies, and a difficult decision arises. If the policy does not call for taking a risk, then the risk isn’t taken. If it turns out that the risk would have been a bad one, then it only proves that the policy is O.K. If the risk would have been a good one, it’s O.K. too, because having the policy prevents them from having any regrets.”

Bullets & Bandits. Jacobsen didn’t pick the oil business; it picked him. A farmer’s son, he was born in Copenhagen. At 14, he quit school to clerk in a wholesale dry-goods store, studied accounting and languages at night school. At 18, he went to Mexico, where he spent the next ten years clerking for a hardware firm, an American lawyer, and the Bank of Montreal’s Mexico City branch. He became such a walking encyclopedia of Mexican land laws that the British-owned Mexican Eagle Oil Co. hired him as assistant secretary. Within ten months he went to Tampico as the company’s assistant general manager, helped run it through chronic revolutions when roving bandits were as plentiful as oil. At 32, Jacobsen became boss of Mexican Eagle.

Mexican Eagle’s chief geologist was a young Kansan named Everette Lee De Golyer. He quit in 1914, and persuaded Lord Cowdray, who owned Mexican Eagle, to put up $1,000,000 to launch an American company to seek oil in America and Canada and call it Amerada. From the first, Cowdray—who died in 1927—laid down the general rule that Amerada has followed: drill up the profits, thus pyramid them in the ground. Jacobsen joined Amerada as a vice president in 1926, five years after Mexican Eagle was sold to Royal Dutch-Shell. He took Cowdray’s maxim to heart.

De Golyer had already made Amerada a small success, though he was still dissatisfied with the current methods of finding oil. They depended chiefly on surface geologic signs, whereas he wanted a more scientific method that would tell what was underground. In the early ’20s, using a Hungarian invention called the “torsion balance” (it measured minute variations in the earth’s gravity pull), De Golyer found that he could locate salt domes along the Texas Gulf Coast, and that oil frequently accompanied the domes. But the torsion balance did not work well in hilly land. So De Golyer experimented with the refraction seismograph, which had been developed from a German artillery-spotting device. With it, he was more successful in finding oil. Use of the refraction seismograph spread, and it remained the top oil-prospecting tool until 1929. Amerada, meanwhile, had bought up and perfected Professor Reginald Fessenden’s patent on a new device, from which Amerada geologist J. C. Karcher developed the modern reflection seismograph. Its “echo” principle permitted much more accurate underground mapping. Amerada learned to use it so well that the company soon dominated the whole U.S. field of petroleum geophysics.

Bargains & Coups. After surveying the U.S. and Canada, De Golyer decided that the best prospects for Amerada were in Texas. But only U.S.-owned companies could drill there. So the Cowdray family split its 60% ownership in half, and let Wall Street’s Dillon, Read & Co. sell half the stock on the U.S. market at $26 a share.* Amerada went into Texas and found oil from the start. With their growing geophysical skill, Jacobsen and De Golyer were so confident of finding oil that when Louisiana Land & Exploration asked them to “shoot” (i.e., prospect) its holdings along the Louisiana Gulf Coast, they took the job for cost, took stock and mortgage bonds in the company as Amerada’s profit. Soon after, Amerada bought $95,000 of Louisiana Land stock. They found so much oil that Amerada’s $95,000 investment is now worth $11 million, and has paid $4,365,850 more in dividends.

Jacobsen took over Amerada’s presidency in 1929, when De Golyer stepped up to chairman.† He quickly made a series of shrewd deals (e.g., he bought 160 acres in California’s Kettleman Hills for $200,000, sat by while others drilled, sold an undivided half interest in his lease for $8,600,000 after another company found oil), built up the cash Amerada needed to expand its oil hunting.

Thus, when the Depression hit, Amerada had an additional $9,000,000 in cash in its treasury, was able to start exploration and drilling in a number of new areas while others pulled in their drills. With so big a stake to bet, Jacobsen was able to take bigger & bigger risks, and, as he says, “We were lucky.” But other companies that had the benefit of the same geophysical methods found little but dry holes. Amerada’s greatest luck seemed to be the fact that it had Jacobsen. Amerada’s net profit rose from $1,147,207 in 1932 to $16,296,652 in 1951. Its estimated oil reserves rose to 500 million bbls., without counting the hundreds of millions more that may be in the Williston Basin.

The Oil Garbo. Jacobsen’s fame grew with his company. Not only was he admired as a great oil finder, but in the industry’s councils he won a reputation as a man who could reduce the toughest problems to their essentials, reassemble them in simple, common-sense answers. Like the mysterious catalysts which speed up oil refining, Jacobsen made things gosmoothly. The fact that he was not tied up with any of the major companies made them, as well as the independents, trust him. He was sought for the industry’s toughest assignments. For example, when the Navy in 1943 wanted to review the fairness of its arrangements for developing the famed Elk Hills oil reserves, it called on Jacobsen for his advice. But Jacobsen dodged publicity, stayed in the background. When he went to Denmark in 1945 after a 20-year absence, the Copenhagen press could get so little out of him that it styled him “the Oil Garbo.” (U.S. oilmen call him “the Great Dane.”)

New Horizons. Because of Jacobsen and the other great gamblers in oil, the U.S. oil industry has been able to make liars of the professors and bureaucrats who have periodically announced that the U.S. would soon run out of oil. In 1908, one expert put U.S. oil reserves at 15 billion bbls. Yet in the years since, the U.S. has burned about 40 billion, has proved up another 12 billion in reserves. It has managed to add to reserves every year despite today’s record rate of consumption of 2.7 billion bbls. a year.

One of the major reasons why the U.S. has found as well as consumed more oil each year, says Jacobsen, is the impetus given to oil hunting by the Government’s depletion allowance. (A similar allowance is also given on other minerals and on lumber.) Though Harry Truman and other Fair Deal politicos have railed against it as a tax steal, Jacobsen points out that the allowance has made possible a multitude of industries based on expanding oil production, and thus vastly added to the corporate taxpayers. “Moreover,” says Jacobsen, “gasoline is lower-priced today, without taxes, than it was in 1926. If higher taxes had cut oil production, gasoline might cost 30 or 40¢ a gallon. If the price were this high, few people could afford it, and the Government would lose millions in taxes.”

Despite the vast increase in oil reserves, the nation’s demands for oil are still growing faster than U.S. production. Overall demand has been rising at an average rate of 5% a year, which means that by 1960 the U.S. will need 3.5 billion bbls. a year.

Jacobsen doubts that the U.S. will ever run out of oil. Oilmen estimate that of 2,400,000 square miles on the earth where oil may exist, only 1% has ever been explored. One huge, virtually unexplored such frontier is Alaska. On all such virgin horizons, Explorer Jacobsen cocks his questing, tireless eye.

* Sam Weaver was an old driller who provided one of the industry’s classic anecdotes. Some 40 years ago, his crew was about to start drilling in Mexico in a cow pasture, when one of the crew asked Weaver where to drill. Replied Weaver: “Watch the cows and drill where the first cow pie falls.”

* Oil hunters can write off the entire cost of a dry hole. They can write off much of the cost of a producing well, including all “intangibles” such as labor, fuel and drilling materials, which amount to two-thirds of the cost. Moreover, once the oil flows, 27½% of it is tax-free because of a depletion allowance.

*By 1940, when the British government took over the shares to pay for arms purchases, the Cowdray family held 17%. For this, the British government paid $5,000,000 in its own bonds at Amerada’s then market price. The same shares were worth $100 million at this year’s peak price, and Britain recently began selling them in the U.S. (Phelps Dodge Corp., copper producers, bought $19 million worth, thus got a 3% interest in Amerada.)

† He resigned in 1932 to found his own famous Dallas consulting firm.